Series on recession and financial crisis

Over the last few weeks we have had a series of discussions at Hoover on the 10th anniversary of the financial crisis and recession. This all happened mostly due to the energy of John Taylor.

The final event on Friday Dec 7 was a Panel Discussion Summary, including Taylor, Shultz, Ferguson, Hoxby, Duffie, and myself, with question and answer. Click the above video.

This was preceded by four smaller discussions. We did not video them, but there are transcripts and presentation materials.

October 19, The causes.  (Follow links to a transcript and to the presentation slides.)  John Taylor and Monika Piazzesi present and learn discussion on the causes of the financial crisis, emphasizing monetary policy, regulation, and housing.

November 9 The Panic What happened on in the panic of August through November (or so) 2018? Did the actions of government officials help or hurt? Or both? George Shultz and Niall Ferguson present their views and lead the discussion.

December 7 The Recession. Why was the recession so deep? Why wasn't it deeper, repeating the Great Recession? Why did it last so long? Did fiscal stimulus help or hurt? Caroline Hoxby and John Taylor led, focusing on labor markets and stimulus. I added some comments on QE and the lessons of the long zero bound for monetary economics; Bob Hall comments on labor markets and unemployment, Mike Boskin comments on stimulus, and much more

December 7 also, Lessons for Financial Regulation. Darrell Duffie and me. Darrell summarizes his excellent "Prone to Fail." I expound on the need for more capital.

What's distinctive about this series, given all the other conferences and retrospectives?

First, we decided not to have retrospectives from people in power at the time. Many other such meetings are descending into memoirs of how we saved the world. Maybe they did, maybe they didn't. And maybe that's not so interesting, except of course to the parties involved who would like to go down nicely in history.

Second, you will find an effort to trace the intellectual lessons of the last 10 years of thought, not just whether certain actions were right or wrong in context of some eternal truth. We all have learned a great deal in the last 10 years, and opinions are shifting. For example, I discuss how capital, once thought immensely costly and regulation much prefereable, has slowly emerged as not at all costly and the best salve for financial crises. Similar lessons have emerged throughout.

Third, and perhaps most importantly, you will find here many disagreements with the standard narrative and what is becoming the first draft of history, as Ferguson nicely described. No, maybe it wasn't just "greed" and "deregulation." No, maybe our officials contributed to panic as much as they helped to stop it. No, maybe fiscal stimulus and QE did not save the world. No, maybe our super-confident regulators armed with an immensely larger rule book are not ready to save the world again next time. And in each case you will hear contrary views buttressed with facts and thoughtful analysis. Perhaps when the second draft of history is ready to be written this will be a starting place.

A wise comment

Scott Sumner passes on a wise comment from his blog:

...the main problem in America is that the public, including its highly educated members, is social-scientifically ignorant. Most people I talk to about policy do not even realize that there is anything non-trivial about policy analysis. They want the government to make sure that four phases of rigorously designed RCTs be performed before drugs are made available to the public, for fear of unintended consequences of intervening on a complex system like the human body, yet they think they understand the consequences of highly complex interventions on human societies by introspection alone. Not only do they think they understand the consequences of alternative policy choices, but they're so confident that their understanding is right and that its truth is so obvious that the only explanation for disagreement is evil intentions.  

When I point out that on virtually every policy issue, at least somewhat compelling arguments for many conflicting points of view have been made by relevant experts, people usually react in disbelief or denial, or immediately retreat to questioning the motives of these experts ("of course they say that, they're on the payroll of Big Business" or whatever). These patterns of speech and behavior are uniformly distributed across the political spectrum, even if intelligence and knowledge of well-established facts is not. Even many experts in particular areas of social science evince no awareness of the lack of expert consensus on almost anything in their field, and give the impression of unanimity to an unknowing public.

(Emphasis in the original.) The rush to bulverism (evil intentions or corruption of people who disagree) is particularly noticeable in economic commentary.  Uncertainty about policy is especially strong in macroeconomics and finance.  That doesn't mean anything goes. Many arguments do violate basic budget constraints or suffer other obvious logical flaws.

How do you know economists have a sense of humor? We use decimal points.

On writing well

The WSJ notable and quotable picked a lovely snippet from “On Writing Well” (1976) by William Zinsser, who died May 12 at age 92. 

Clutter is the disease of American writing. We are a society strangling in unnecessary words, circular constructions, pompous frills and meaningless jargon. 

Who can understand the clotted language of everyday American commerce: the memo, the corporate report, the business letter, the notice from the bank explaining its latest “simplified” statement? What member of an insurance plan can decipher the brochure explaining the costs and benefits? What father or mother can put together a child’s toy from the instructions on the box? Our national tendency is to inflate and thereby sound important. The airline pilot who announces that he is presently anticipating experiencing considerable precipitation wouldn’t think of saying it may rain. The sentence is too simple—there must be something wrong with it. 

But the secret of good writing is to strip every sentence to its cleanest components. Every word that serves no function, every long word that could be a short word, every adverb that carries the same meaning that’s already in the verb, every passive construction that leaves the reader unsure who is doing what—these are the thousand and one adulterants that weaken the strength of a sentence. And they usually occur in proportion to education and rank.

Though each sentence is spare,  Zinsser includes some long and concrete lists. Notice how effective that combination is.

From the New York Times Obituary

His advice was straightforward: Write clearly. Guard the message with your life. Avoid jargon and big words. Use active verbs. Make the reader think you enjoyed writing the piece. 

He conveyed that himself with lively turns of phrase: 

“There’s not much to be said about the period except that most writers don’t reach it soon enough,” ... 

“Abraham Lincoln and Winston Churchill rode to glory on the back of the strong declarative sentence,” ..

Zinsser's book was an inspiration to me.  I highly recommend it to economists and PhD students. (My reading list for a PhD writing workshop.)

Measure your time. You may think you're a social scientist, but in fact you're a writer.

Envy and excess

In the inequality post, I puzzled over the following conundrum:

Why does it matter at all to a vegetable picker in Fresno, or an unemployed teenager on the south side of Chicago, whether 10 or 100 hedge fund managers in Greenwich have private jets? How do they even know how many hedge fund managers fly private? They have hard lives, and a lot of problems. But just what problem does top 1% inequality really represent to them? 

I emphasized the quantity issue here. His grandfather in the 1930s watched movies and saw glamorous lifestyles way beyond what he could achieve. Increasing inequality is about larger numbers who live a lavish lifestyle. And the claim is that increasing inequality is changing behavior.

There is a view motivating the left that inequality is just unjust so we - the federal government is always "we" -- have to stop it. If they'd say that, fine, we could have  productive discussion.

But they say, and I was going after in the post, all sorts of other things. That inequality will cause poor people to spend too much, that it will cause them to rise in political rebellion, for example. For that to happen, for the presence of the rich to affect their behavior in any way, they have to know about how the exploding 1/10 of 1% live, and how many of them there are. Which just doesn't make any sense.

Paul Krugman had a few revealing columns over the weekend. (No, not the endlessly repeated Say's Law calumny. I trust you all understand how empty that is.)